Common Myths about Applying for Loans

You have been working very hard to make sure that you cover all of your bills each month and keep your credit score in check. Then one day you come across a financial crisis. Perhaps your car has broken down and is in desperate need of repair, or maybe you have to move suddenly. No matter what the problem is, there is a moment of panic that everyone will experience. Now is not the time to panic; step back for a moment and regain your composure before you begin looking for financial solutions. This will help you avoid a lot of common mistakes and also help the odds that you will not be taken advantage of by some of the hundreds of loan companies in your area.

While in a state of panic, a lot of people tend to use the fishing myth for applying for a personal loan. The fishing myth is often what people call it when someone applies for dozens of personal loans, to try and get a feel for what they can be approved for, how quickly they can get it and how much the interest will be. While they are all important things to consider, it is wise for applicants to figure out if these applications will affect their credit scores. Most loan companies run a credit check to see what your payment history is like as well as your debt to income ratios. Depending on how this is done, it can count as a hit on your credit rather than just an inquiry.

Another myth that a lot of people don’t give enough credence to, is applying for more than they need. They feel that if they apply for more than they need, they can use the extra funds to make the first loan payment or buy something that they have been trying to save money for. They think that by applying for a larger loan that it will extend the amount of time they have to repay the loan. This is not the case. The term of the loan is pre-determined by the company that is issuing the loan. These payments are broken into even installments and if you take out a larger loan than you would need, you run the risk of not being able to repay your loan on time. This can quickly cost you hundreds of dollars. This can also rapidly reduce your credit score. When you default on a loan it is an instant black mark on your credit report and it is one of the hardest marks for anyone to remove.

Taking the time to look for the right loan before you apply is one of the ways you can avoid being victim to some of these myths. You can also look for a lending company that works with you to find loans from several different institutes. This way you are only placing one application that is able to be reviews by multiple lenders. This increases the chances of finding a loan with a single application, which can help prevent any more dings to your credit score.